Dodd retirement may help pass bank reform: analysts

Connecticut senator says he 'believes in bipartisan solutions'

By

RonaldD. Orol

WASHINGTON (MarketWatch) -- Sen. Christopher Dodd, the embattled chairman of the Senate Banking Committee, has decided to forgo seeking a sixth term in November, leading analysts and advocates to argue that his retirement will have a pro-consumer effect on bank-reform legislation or no impact at all.

"He's always been a strong consumer advocate," said Graham Steele, policy analyst at consumer advocacy group Public Citizen. "Now he can be bolder because he won't have to worry about continuing a working relationship with other members of the banking committee after the legislation is approved, particularly if negotiations go sour."

Dodd, 65, is announced his decision at a noontime news conference in Connecticut, the state he's represented in the Senate since 1981.

"It is my time to step aside," Dodd said.

The Connecticut senator is in negotiations to reshape a mammoth bank-reform bill he introduced in November into bipartisan legislation with Sen. Richard Shelby, R-Ala., the committee's top Republican member. Dodd is expected to remain in charge of the committee while it hashes out the bank reform legislation, which is expected to be completed, by July, at the latest.

Shelby has had major issues with Dodd's proposal to create Consumer Financial Protection Agency, an independent body that would be charged with writing rules for mortgage and credit-card products in the wake of the credit crunch and financial crisis. However, the lawmakers agree on many other aspects of regulatory reform, including efforts to reduce many of the Federal Reserve's powers.

"I believe in bipartisan solutions, but you can only achieve those results with civil debates," Dodd said.

The revised legislation is on track to be released later this month or early in February. The bill follows sweeping post-crisis reform legislation approved by the House in December.

Dodd has long battled perceptions that he was too close to the financial industry, particularly that he was too cozy with his state's insurance companies and hedge funds.

He's also come under fire for receiving a high level of preferential treatment when he participated in a "VIP" lending program a few years ago run by Countrywide Financial, the troubled mortgage lender that Bank of America Corp.
BAC, +0.02%
acquired amid controversy in 2008.

The Senate Ethics Committee cleared Dodd in August 2009 following a year-long investigation about whether a mortgage he obtained from Countrywide violated Senate rules on gifts. Read about ethics probe.

'Dodd's resignation doesn't get around all the other Wall Street money going around the committee.'
Graham Steele, Public Citizen

Dodd also had been criticized for including language in a stimulus bill that would have restricted bonuses and golden parachutes at financial firms, but allowed American International Group Inc.
AIG, -0.17%
which received a $190 billion bailout, to retain its particular bonuses thanks to a "grandfather" clause.

However, Dodd did draft legislation to create a government "pay czar," position that was filled by Washington attorney Kenneth Feinberg, who is charged with restricting pay packages for executives at institutions, including AIG, receiving exceptional assistance from a $700 billion bank bailout package.

"Those who admire the work done by Kenneth Feinberg to put the first constraints in American history on excessive compensation for financial executives should remember that it was Senator Dodd's amendment that gave him that power," said Dodd's House counterpart on bank reform, Rep. Barney Frank, D-Mass.

Dodd acknowledged that "the past year has raised some challenges."

"There have been times when my positions and actions have caused some of you to question that confidence. I regret that," Dodd said.

Consumer-advocacy groups and others expressed skepticism that Dodd's resignation could make it easier for the committee to act with greater independence from the banking industry as other senators take steps to raise funds for their own election campaigns.

"For the rest of the committee, it is still campaign season," said David Brown, partner at Alston & Bird LLP in Washington.

Public Citizen's Steele argued that it will remain an uphill battle for consumer groups to achieve all their goals as the committee takes up bank-reform legislation. "Dodd's resignation doesn't get around all the other Wall Street money going around the committee," Steele said.

However, Columbia Law School Prof. John Coffee said Dodd's decision to retire may free him to craft a legacy through bank-reform legislation.

"Anyone who retires from Senate after as long a career as he has had, will want to leave a monument behind," Coffee said. "I think that he would like to leave that kind of monument.."

Who's next for banking chairman

Jaret Seiberg, analyst at Concept Capital in Washington, contends that Dodd's departure will be unlikely to have an impact on the outcome of financial-reform legislation.

"Dodd already was going to have to compromise with Shelby if he wanted to enact the bill," Seiberg said. "His decision to retire after the election does not alter this equation."

Seiberg also argued that the odds favor the banking chairmanship next going to Sen. Tim Johnson, D-S.D., as part of a power-sharing deal with Sen. Jack Reed, D-R.I.

Reed, chairman of the Securities, Insurance and Investment subcommittee, would likely receive more staff and help run the committee as subcommittee chairman, Seiberg said.

After suffering from permanent brain damage in 2006, Johnson returned to work in the Senate in September, 2007.

Johnson would retain the chairmanship position if Democrats retain the majority of seats in the Senate after the November election.

In addition to Dodd, Sen. Byron Dorgan, D-N.D., announced he would not stand for re-election in November. The Democrats' plans to retire are likely to make what had been shaping up as a tough re-election campaign season for the majority party that much more difficult. Read about impact of retirements to Democrat plans.

To compromise or not to compromise?

Shelby has had major issues with Dodd's proposal to create Consumer Financial Protection Agency, an independent body that would be charged with writing rules for mortgage and credit-card products in the wake of the credit crunch and financial crisis.

Conservatives are seeking to have the committee eliminate the consumer agency and replace it with a council that would be based on legislation rejected in the House. Another alternative sought by the GOP would allow the consumer agency to write rules for protecting consumers but would eliminate its law-enforcement authority, which instead would remain with existing bank regulators.

A major point of contention relates to the power of the Fed in the new regulatory world.

Provisions in the House bill call for combining the Office of Thrift Supervision and the Office of the Comptroller of the Currency, while the Dodd-authored bill would create a consolidated overseer made up of all bank regulators, effectively stripping the central bank of its authority to supervise banks.

That authority would rest within the new "systemic regulator."

The Dodd bill would also strip the Federal Deposit Insurance Corp. of its oversight and regulatory authority regarding banks. As with the House bill, Dodd would set up a process to oversee the dismantling of failed financial institutions so they doesn't cause collateral damage to the markets.

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